Buying a house used to be a math problem you could actually solve. You worked a decent job, saved up for a few years, and eventually, the bank handed over the keys. It felt linear. Simple. But if you’ve looked at a Zillow listing lately and felt a sudden sense of vertigo, you aren't imagining things. The income and house price ratio—that basic measurement of how many years of salary it takes to buy a home—has drifted so far from historical norms that it feels like we’re playing a game with a glitchy UI.
Honestly, the numbers are jarring.
Back in the 1960s and 70s, the median home price in the U.S. usually sat at about two or three times the median annual household income. If you made $15,000, a house cost $40,000. It was manageable. Today? In many "superstar cities," we’re seeing ratios of 8:1, 10:1, or even higher. We are living through a massive decoupling of what people earn and what shelter costs. It’s a structural shift that’s redefining what it means to be "middle class" in the 2020s.
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The 2.6 Rule is Dead (And It’s Not Coming Back Soon)
Economists often point to a ratio of 2.6 as the "sweet spot" for a healthy housing market. That's the historical average for the U.S. over several decades. When the ratio stays around there, people can afford to move for better jobs, neighborhoods stay stable, and young families can get a foothold.
But look at the data from the Federal Reserve Bank of St. Louis. By the end of 2023 and heading into 2024, the national median sales price of houses sold in the U.S. was hovering around $420,000, while the median household income struggled to keep pace at roughly $75,000 to $80,000 depending on the specific census tract you're looking at. That puts the national income and house price ratio well above 5.0.
That is double the "healthy" rate.
It’s even worse when you look at specific pockets. In Los Angeles or San Francisco, you’re looking at ratios that make your head spin. It’s not just a "coastal elite" problem anymore either. Cities like Boise, Idaho, and Austin, Texas, saw their ratios explode during the pandemic migration. When remote workers with Silicon Valley salaries moved to the mountains, they didn't just bring their laptops; they brought a massive imbalance to the local economy.
Why did the gap get so wide?
It isn't just one thing. It's a "perfect storm" of boring policy and chaotic economics. First, we stopped building. Following the 2008 financial crisis, home construction plummeted and never really recovered to the levels needed to match population growth. We have a massive supply deficit.
Then there’s the "lock-in" effect. Millions of homeowners are sitting on 3% mortgage rates. Why would they sell and buy a new place at 7%? They wouldn't. So, inventory stays low, prices stay high, and the ratio keeps climbing.
The Psychological Toll of the 7:1 Ratio
Think about what a high income and house price ratio actually does to a person's brain. When the math doesn't work, people stop trying. This is where we see the rise of "doom spending." If you realize you’ll never save the $150,000 needed for a down payment because the goalposts move $20,000 further away every year, why not just buy the $5,000 vacation or the designer bag?
It's a rational response to an irrational market.
I talked to a mortgage broker in Nashville recently who told me he sees "gift letters" in almost 40% of his first-time buyer applications. A gift letter is basically a document proving that your parents gave you the down payment. We are moving toward an inheritance-based housing market rather than an income-based one. If your parents didn't buy a house in 1992, you’re starting the race 50 yards behind everyone else.
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This creates a "landed gentry" vibe that feels very un-American. It used to be that your degree and your hard work determined your housing. Now, it’s often about your "lineage" and whether your grandma's house in the suburbs appreciated by 400%.
Regional Variations that Defy Logic
- The Rust Belt: In places like Cleveland or Detroit, the ratio is actually still somewhat sane. You can find homes at 3x or 4x income, but the trade-off is often lower wage growth or aging infrastructure.
- The Sun Belt: Phoenix and Las Vegas are the "boom and bust" kings. Their ratios fluctuate wildly. Right now, they are painfully high because everyone moved there at once.
- The Northeast: Think "permanently expensive." New York City isn't a place where the ratio applies; it’s a place where you just accept that 50% of your income goes to a landlord.
Is This a Bubble or Just the New Normal?
People keep waiting for the "pop." They remember 2008. They think, "Prices have to come down because nobody can afford this."
The problem? They can afford it, just not the people you’d expect. Institutional investors—think BlackRock or Invitation Homes—have been buying up single-family residences by the thousands. To an algorithm, the income and house price ratio of a local teacher doesn't matter. What matters is the yield on rental income. If a corporation can buy a house in cash and rent it back to the people who can't afford to buy it, the "price" of the house stays high even if local wages stay flat.
Also, the lending standards are much tighter than they were in 2006. We don't have the "ninja" loans (No Income, No Job, no Assets) that caused the last crash. Most people owning homes right now have great credit and fixed rates. They aren't going to default just because the market cools. They'll just stay put.
How to Navigate the Math Without Losing Your Mind
If you’re looking at these stats and feeling discouraged, you have to change your strategy. The old advice of "save 20% and buy a starter home" is mostly dead in high-growth areas.
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House hacking is one way people are fighting the ratio. You buy a duplex, live in one half, and let the tenant pay the mortgage. Or you buy a "fixer-upper" in a neighborhood that's still "kinda sketchy" but has a new coffee shop. It's not glamorous. It's a grind.
Another factor is geographic arbitrage. This is the fancy way of saying "move somewhere cheaper." With the rise of hybrid work, the link between where you work and where you sleep has loosened. If you can keep a Chicago salary while living in a smaller town in Indiana, you’ve effectively "hacked" the ratio.
Actionable Steps to Take Today
- Calculate your personal ratio. Take the price of the homes you actually want and divide it by your gross annual household income. If that number is over 5, you need to either significantly increase your down payment (to lower the loan amount) or look in a different zip code.
- Ignore the "Asking Price." Look at "Sold" prices from the last 90 days. The income and house price ratio is based on reality, not the dreams of a seller who thinks their 1970s kitchen is worth a premium.
- Audit your debt-to-income (DTI). Since the house price ratio is so high, banks are being much stingier with DTI. If you have a massive car payment or student loans, your "effective" ratio is even worse than the market average. Clear the small debts first.
- Watch the 10-Year Treasury. Mortgage rates usually track the 10-year yield. When that dips, your purchasing power goes up, even if the house price stays the same.
- Stop waiting for a 2008-style crash. It might happen, but betting your future on a total economic collapse is a risky move. Instead, focus on "time in the market" rather than "timing the market."
The reality is that the income and house price ratio might stay elevated for a generation. We have a fundamental supply problem that takes decades to fix. Zoning laws need to change, more multi-family units need to be built, and interest rates need to find a new equilibrium. Until then, understanding the math is your best defense against making a bad financial move. Don't buy just because you feel like you "should." Buy because the numbers make sense for your specific life, regardless of what the national average says.